Govt’s other ‘caged parrots’ getting GDP numbers wrong

Q1 2013-14 real GDP growth has been 4.4%. The government still expects 5.5% for the entire year. Many people expect Q2 and Q3 to be worse and the full year growth to be not more than 4.5%, perhaps even 4%. Let’s accept for the moment that this is entirely because of the external world, the global slowdown. “The overall economy is expected to grow in the range of 6.1 to 6.7 per cent in 2013-14.” Who said this? Economic Survey 2012-13 said this. Before you mention the external world and global oil prices, this is Economic Survey 2012-13 again.

“Nevertheless, it is unlikely that the support to Indian growth from the global economy will be significant. Indeed, there are two sources of downside risk. First, India is exposed to shifts in the risk tolerance of international investors. Second, India’s import bill is strongly tied to the price of oil.” After factoring all that external stuff in, Survey thought growth would be 6.1 to 6.7% in 2013-14. That was Economic Survey 2012-13. Here is Economic Survey 2011-12. “Preliminary calculations suggest that the growth rate of GDP in 2013-14 will be 8.6 per cent.” And here is Economic Survey 2010-11. After having spoken of 9% growth in 2011-12, it said, “Looking further, into the medium to long term, the expectation is that India’s pace of economic development will pick up even more…the next two decades should see the Indian economy growing faster than it has done any time in the past and also faster than the growth in the next two years”. Note all these Survey quotes are from Surveys after 2009 and the global financial crisis.

Next we move to the Prime Minister’s Economic Advisory Council and its report dated April 2013. “This expected pick-up in the pace of economic activity in the course of 2013-14 should be able to take growth from the present level of around 5 per cent in 2012- 13 to about 6.4 per cent in 2013-14.” Don’t mention political uncertainty. Read the report. The PM’s Economic Advisory Council projected this after factoring in political uncertainty and April-May 2014 elections. This is the PM’s Economic Advisory Council in its report dated August 2012. “Overall for the economy, the Council thus assesses that an average growth of 6.7 per cent in 2012/13 can be realistically expected.” Move on to the Approach Paper to the Twelfth Plan, published in October 2011.

“It is reasonable to aim at 9.0 per cent growth for the Twelfth Plan.” This is after taking into account the external environment. In the subsequent Twelfth Plan document proper, that 9% was reduced to 8.2% and we had three scenarios. Let me give you the complete quote. “This in effect is the scenario underpinning the Twelfth Plan growth projections of 8.2 per cent, starting from 6.7 per cent in the first year to reach 9 per cent in the last year and the second scenario ‘Insufficient Action’ describes the consequences of half hearted action in which the direction of policy is endorsed, but sufficient action is not taken. The growth in this scenario declines to around 6 per cent to 6.5 per cent. The third scenario ‘Policy Logjam’, projects the consequences of Policy Inaction persisting too long. The growth rate in this scenario can drift down to 5 per cent to 5.5 per cent.”

With reforms, we will get 8.2%. With insufficient action, we will get 6 to 6.5%. With policy logjam, we will get 5 to 5.5%. The Planning Commission hasn’t yet told us whether we are now in an insufficient action or policy logjam environment. But the point I am trying to make is that notwithstanding the global slowdown, all that economic expertise within the government simply doesn’t seem to know what is going on and keeps getting the projections wrong. For 2013-14, I didn’t believe the 6.7% mentioned earlier.

I don’t believe the 5.5% mentioned now. I know it will be 4.5%. This is how I know. In one of those markets in Vasant Vihar, there is an astrologer who sits there with his parrot. The parrot steps out of its cage, picks out a card and your fortune is told. With the astrologer’s permission, and with to his amusement, I presented the parrot with three cards. One said 4.5%, the second said 5.5% and the third said 6.7%. The parrot picked out 4.5%. Jokes apart, there are caged parrots within the government too, and not simply those who have been identified as caged parrots. They dish out projections and advice. And no one holds them to task when they are proved wrong. As a general proposition, you don’t want convergence in projections and advice, which seems to be what is happening, with the RBI having been a bit of an exception. As government, you should want contrarian voices and not simply ones that agree. Otherwise, when you are brought down to earth, it is unexpected.

DISCLAIMER : Views expressed above are the author's own.

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Bibek Debroy is an economist, columnist and author. He has worked for the government, for an industry chamber and for academic (teaching and research) institutes. He is the author of several books, papers and popular articles. He is now a Professor at the Centre for Policy Research, Delhi

Bibek Debroy is an economist, columnist and author. He has worked for the government, for an industry chamber and for academic (teaching and research) insti. . .